What It Means to be Independently Wealthy Plus 10 Tips to Get You There
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A lot of people like you are longing to be independently wealthy, wishing for more riches because of certain dreams they wish to follow. It could be driven by passion or travel goals, the long urge to quit demanding jobs and live a more comfortable lifestyle, or the urgent need for money. Whatever the weight behind your goal is, you might find that financial success is not as remote as you think and is actually achievable.
We will discuss what it means to be independently wealthy, how it varies from financial independence, and what to do to get yourself on that path.
But, what does it really mean to be independently wealthy?
While the majority of people believe that being independently wealthy entails having so much money that you can practically live the life of your dreams, the actual definition is considerably more accessible.
Having enough money on your own to not need assistance from others or a job’s salary is being independently wealthy. It is literally having financial independence from others. In other words, it means you have enough money in savings, investments, passive income streams, or other assets that you don’t need a job or other sources of income to support you. This concept does not imply that you do not work, but rather that you do are not required to work just so you could maintain your standard of living.
Therefore, you would be regarded as independently wealthy if you have enough money to support whatever kind of life you’re aiming to pursue without requiring income from a third party.
How is being independently wealthy different from financial independence?
You’re probably thinking at this moment that this concept closely resembles financial independence.
That’s because they are essentially the same thing by definition. Although there are some differences in how financial independence is defined, most people believe that it basically means having enough money to live your life as you choose for the rest of your days without having to work.
Additionally, the idea of retiring early is frequently associated with financial independence, abbreviated to FIRE (financial independence, retire early). FIRE comes in a variety of forms and strategies for achieving financial independence include everything from early full retirement to embracing a work-optional lifestyle.
So, what’s the main difference?
The FIRE movement, which was promoted in the early 1990s by Vicki Robin, has essentially evolved into the idea of achieving financial independence as soon as possible so that you can retire early. It is suggested that practically everybody can achieve financial independence.
On the other hand, those who are independently wealthy are thought to be much wealthier than those who are pursuing the FIRE dream. In fact, one is by definition both independently wealthy and financially independent once they have enough money to not depend on others or a work for their income. You’ve accomplished the ultimate goal of financial freedom in both situations.
One such distinction is one of perception rather than definition. Independently wealthy people are seen to have enough money to cover their expenses without needing to turn to even passive sources of income. Those who are independently wealthy in this scenario would have significantly more saved than the normal FIRE crowd.
The only possible distinction is that those who are considered to be independently wealthy have sufficient resources that they wouldn’t need to rely on revenue from their business, rental properties, or investment portfolio (even though they do).
What does being independently wealthy look like?
All of the above is to say, the difference between independently wealthy and financially independent is really in the perception of these terms rather than the reality.
This is why becoming financially independent, and even FIRE is seen as attainable while becoming independently wealthy is not.
All of the aforementioned points serve to highlight how perception, rather than actuality, determines whether a person is considered independently wealthy or financially independent.
Due to this, achieving financial independence and even FIRE are regarded as feasible goals, but achieving independence in terms of wealth is not.
Most people envision an independently rich person when they think of luxury cars, a mansion, designer clothes, private jet or yacht, started or works at a successful large business, born into a wealthy family, or a celebrity.
While those people are independently wealthy, so are people with ordinary cars, a nice house in a pleasant neighborhood, regular clothes, and a small business, or those who are considered an average person, works a regular but good job, flies like the rest of us, and born into a regular family without any inheritance.
As a matter of fact, there are a lot more everyday millionaires than you may imagine. In the United States, there are around 11.8 million households with a net worth of at least $1 million, or 3% of the total population – only about 20% of these households received their money from inheritance. About 20 million Americans, or 8% of the population, have enough wealth to be deemed millionaires.
These statistics, along with the findings of Chris Hogan presented in his book titled Everyday Millionaires, show that there are more millionaires out there than you may believe. Such people are also unlikely to be noticed easily.
The explanation for this hidden wealth is straightforward: common people who become millionaires do it by formulating a plan, sticking to it tenaciously, and exercising patience.
Everyday millionaires in the real world become such after decades of sound financial management.
10 tips for you to be independently wealthy
Is being independently wealthy one of your financial objectives now that you know it’s feasible? Here are some pointers to help you become an everyday millionaire and achieve financial independence.
1. Create a budget
Knowing where you’re starting from is always the first step in any plan and having a budget will help you do that. It will be difficult to determine where to make adjustments or where to begin directing your money if you don’t know where it is currently going.
Since there isn’t just a one budgeting strategy that fits everyone, start by identifying a way that suits you. Next, make sure you have accounted for all possible budget categories relevant to your scenario. Finally, enter your data to determine where you stand.
Once you are aware of your monthly financial situation, you can make any required adjustments and start planning to allocate more funds to your monthly budget’s savings and investment categories.
2. Determine your net worth and monitor it
The next stage is to determine your net worth once you have your initial budget. Your total assets less total liabilities, or what you possess less what you owe, is your net worth.
Items of worth or things that provide income are examples of assets. These consist of investments, savings, bonds, rental income, bank accounts, and retirement funds.
Any debt you owe, such as on credit cards, vehicle loans, mortgages, etc., is referred to as a liability.
To know how you’re doing on your path, it’s crucial to figure out your initial net worth and keep track of it.
If you discover that your net worth is negative or minimal, try not to become too upset. Recognize that this is just the beginning and that as you reduce debt and boost savings, your net worth will progressively rise.
3. Devise a plan
It’s time to make a plan to achieve your financial goals now that you are aware of your present spending pattern and net worth.
The details of this plan can vary depending on the individual, and some trips will take longer than others. It’s crucial to develop a plan that you can carry through. Create short-term goals and make adjustments when your circumstances change.
Be kind to yourself first and foremost. Recognize that achieving independent financial success is a long-term objective that will require years, if not decades. Find ways to keep yourself accountable and motivated to save, but also make time for enjoyment along the road.
4. Live within your means
Living within your means is essential to becoming a an everyday millionaire.
Simply put, living within your means means is about making sure your spending does not exceed your income. Beyond the obvious, though, leading a modest lifestyle is necessary if you want to become independently wealthy.
Many people who pursue this objective are able to save 40% to 50% of their income and allot those to investments.
The key message from this is that you can attain your goal more quickly the further below your means you can live. We’ll talk more about saving later in the article.
5. Avoid debt
Paying off existing debt and avoiding taking on new debt are essential components of living within your means or below it while trying to become independently wealthy.
It’s crucial to remember that not all debt is created equally in this case. For instance, student loans used to fund a mortgage to pay for a home or pursue a degree that would lead to a high-paying career are sometimes regarded as debt that will benefit you.
When we give advice to avoid debt, we mean taking out loans to buy things that lose value over time or may only improve your life temporarily. Similar to this, you should steer clear of debt like credit card debt that obligates you to pay a high interest rate.
Examples of the type of debt to avoid include depreciating assets like cars, credit cards, student loans on degrees that won’t result in a job that will allow you to repay the loans, and payday loans.
Additionally, while we noted earlier that it’s necessary to occasionally relax while traveling, you must avoid going into debt just to do so.
6. Increase your income
Increasing your income is the flip side of paying off debt. Trimming your debt or raising your income are the only two methods to get more money when it comes down to it.
The only way to start along the path to being independently wealthy for some people may be to boost their income. Ultimately, there are limits to how much you can reduce your spending.
You can raise your income in several ways, such as going back to school, acquiring new skills, asking for a raise, switching jobs, hacking your 9 to 5, house hacking, commencing a business or a sideline, obtaining a second job, or investing in dividend shares.
The most effective strategy to enhance your savings rate and get closer to becoming independently wealthy, regardless of which method(s) work best for you, is to increase your income.
7. Establish an emergency fund
By creating and growing a substantial emergency fund, you can be sure that you are strengthening your ability to withstand financial hardship as you try to reduce debt and boost your income.
In fact, establishing an emergency fund is so crucial that we advise doing so even prior to starting a serious debt-reduction program for any outstanding consumer debt.
The majority of Americans are unable to afford a $400 purchase without using credit, and many people are unable to handle an unforeseen bill.
Start modest and put aside as much as you can each month until you have a reserve that can pay for at least three months’ worth of expenses. Build that amount up to a minimum of six months’ worth of expenses eventually. Place this money in a short-term savings account so that it can continue to benefit you while still being reasonably safe and handy.
An unanticipated job loss or emergency expense can rapidly disrupt your plans and set you back years, regardless of how much money you make or how much debt you’re paying off. Early on in your journey, protect yourself from these uncertainties by setting up an emergency fund.
8. Save (and invest) like crazy
It’s time to start or increase your investments now that you have a budget, are keeping track of your net worth, are paying off debt and increasing your income, and have a sizeable emergency fund.
Although it’s a good start, saving money won’t make you independently wealthy. The secret is to put your money to work so that it can start earning income. Investing in the stock market and other businesses, such as real estate, enables you to not only earn a respectable average return over time, but also to start profiting from those gains thanks to compound interest.
There are many excellent tools available to help you if you’re unclear of how to invest or where to begin. The simple method of investing is to place your money in target-date funds, which automatically readjust risk level as you get closer to the target date, or in index funds, which own a portion of all the companies in the index.
After conducting your own investigation, if you’re still hesitant, seek the assistance of a reliable person or financial counselor.
Additionally, think of investing as a long-term endeavor and stay away from get-rich-quick schemes, especially when dealing with individual and penny stocks. Over time, index funds will outperform the majority of day traders.
There are so many options to choose from including investing apps that make it easy to set up and manage your accounts.
9. Own your home
The data strongly shows that owning a property is a good step toward being independently wealthy, although there are arguments both for and against this.
Most millionaires not only own homes but also make real estate investments. In fact, real estate investing has helped almost 90% of millionaires accumulate their money on their own and become independently wealthy.
It makes sense to include owning a home as one of your goals on the route to becoming independently wealthy because real estate is one of the main avenues via which people become millionaires.
Do you have to purchase a home to become independently wealthy? No. But will it be helpful? Yes, absolutely.
10. Do take care of yourself
You will be well on your way to being independently wealthy if you follow the advice above, but if you don’t look after yourself along the way, none of your hard work will matter.
The belief that we should always be working, or hustle culture, may soon turn toxic. Yes, working hard and making sacrifices will be necessary for you to become independently wealthy, but you shouldn’t take any actions that could prevent you from enjoying your fortune.
It’s crucial to forgo work time in order to get enough sleep, exercise, eat healthily, and do activities you enjoy, even though it could lengthen the journey toward your goal.
True, a few years of effort can provide enormous rewards, but keep in mind that it will probably take many years, if not decades, to become independently wealthy. You should not let health problems develop along the road.
In a nutshell
Can you turn out to be independently wealthy?
Even while it might not seem like it, the answer is probably yes. Given enough time, almost anyone can become independently wealthy provided they have a plan, are persistent, and are patient.
You may utilize the 10 suggestions outlined above to help you narrow in on the tasks necessary to get you started down the road to financial independence, then take action at your own speed.
Even if you never achieve the status of being independently wealthy, you will still put yourself and your family in a far better financial position than you would have if you had not started the trip. Even if you don’t exactly reach your financial goals individually, you have the chance to begin accumulating generational wealth. Good luck!
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Adam is an internationally recognised author on financial matters, with over 551.2 million answers views on Quora.com and a widely sold book on Amazon and a contributor on Forbes.